By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Bears Take A Stand
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart is a monthly chart to give you a long term perspective.
- The chart shows the key resistance line.
- The chart shows that the relentless rise in the stock market this year is being punctuated in August.
- For the bull case, the extent of the ‘sell the news’ reaction to Nvidia’s (NVDA) extraordinary earnings blowout is troubling. The sell the news reaction is common, but the extent of the selloff on great news is not common.
- Members of The Arora Report had some clues yesterday before the selloff when the momo crowd was aggressively buying stocks, especially tech stocks, before the market open. Here were the important clues from the Morning Capsule:
Investors should be mindful of a potential ‘sell the news’ reaction as the day progresses in spite of the bullishness this morning.
Money flows in NVDA were extremely positive in after hours after release of the earnings. However, in the premarket, money flows in NVDA are negative. Money flows after hours were very positive in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL). However, money flows this morning are negative in AAPL and GOOG.
Our very, very short-term early stock market indicator is positive but can quickly turn negative.
- The case that bears are making is that a double top is developing on the chart. The double top is a negative pattern.
- Permabear gurus are out in full force declaring the AI frenzy driven stock market rally is over.
- The momo crowd is not deterred by permabear proclamations. The momo crowd is buying again believing that the NVDA earnings dip is a buying opportunity.
- The chart shows that RSI has pulled back along with the market but is still overbought.
- Investors are waiting for Powell’s speech at Jackson Hole. The speech will start at 10:05am ET.
- Going into the speech, investors are obsessed with R*. R* is a theoretical level indicating a neutral rate. In plain English, a neutral rate is an interest rate that is not restricting or stimulating the economy.
- Since 2009, the Fed’s projections have been a median of 2.5% for the long term policy rate. The concern is that Powell may want a higher policy rate for the long term. As a reference, in the past, Powell has said that he doesn’t know what the neutral rate should be.
- As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Microsoft (MSFT), Meta (META), and Apple (AAPL).
In the early trade, money flows are negative in Tesla (TSLA), Alphabet (GOOG), and Nvidia (NVDA).
In the early trade, money flows are mixed in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade. Smart money is 🔒 in the early trade.
Gold
The momo crowd is 🔒 in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is range bound.
Markets
Our very, very short-term early stock market indicator is 🔒. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Interest rates are ticking up, and bonds are ticking down.
The dollar is range bound.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $1944, silver futures are at $24.23, and oil futures are at $80.11.
S&P 500 futures are trading at 4401 as of this writing. S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4318, 4200, and 4000.
DJIA futures are up 133 points.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.
Traditional 60/40 Portfolio
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
Dr. Natasha Arora
Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.
